The IPO Market’s Winners and Losers Last Week – JUNE 11, 2023

Fast-casual Mediterranean chain?CAVA Group (NYSE: CAVA)?kicked off the summer IPO market. US consumers are spending heavily on take-out, and CAVA is looking to ride a strong Q1 to a $260 million offering that values it at about $2 billion. Almost 40% of the deal was covered at the outset.

Trading is set for Thursday. Glad to see the return of the week-and-a-half roadshow.

Took an office straw poll about CAVA’s food, and the verdict was mostly positive. Someone said “better than Sweetgreen” and that might sum up the investment case too. CAVA has Sweetgreen-like growth, but roughly Chipotle-like restaurant operating margins. That’s a powerful combo, though company-level profit still has a ways to go, and some of the recent growth has been low-hanging fruit.

In any case it’ll test investor appetite for both restaurants as well as growth stories. It's the first major restaurant IPO since Sweetgreen in late 2021.

The Renaissance IPO Index rose +1.0% this week, again beating the S&P 500’s +0.4%. All IPO sectors were positive. Software dev platform?GitLab?jumped +39.9% after its beat-and-raise earnings. Cloud infrastructure firm?HashiCorp?was the week’s loser, off -23.2% after lowering guidance.

The IPO market is now up +25.5% year-to-date, vs. +12.0% for the S&P 500. The recent bear market has conditioned us to be skeptical of good news, and it’s possible that we’ll see another pullback. But the positive IPO returns are a good reminder to stay invested. Of course, we still recommend a balanced portfolio with some allocation to new stocks.

Take care,

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